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Wireless

Apple pays only EUR 3 million in taxes in Italy

Thursday 15 August 2013 | 10:55 CET | News
Despite earning USD 41.7 million in its global operations in 2012, Apple said that it lost money in Italy and as a result, Apple's two subsidiaries in Italy paid just EUR 3 million in taxes last year. The company's retail stores in Italy reported a pre-tax profit of EUR 11.5 million on sales that almost doubled last year to EUR 250 million from EUR 127 million in 2011. However, costs involved in expanding its Apple retail outlets helped it to write down its taxes, reports local news agency Ansa.

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Categories: Mobile & Wireless
Companies: Apple
Countries: Italy
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Comments

Second, as explained above, the current matrix of tax treaties and domestic laws was developed over the better part of a century. Domestic tax policy was put in place by local politicians acting in what they thought was the best interest of that country. Tax treaties were negotiated, signed, updated when both countries perceived a win-win for each of their countries; The major problem in trying to achieve achieve changes that will increase tax revenue (that groups like you, Oxfam, Tax Justice Network and ActionAid are calling for) is that you need to change not only domestic rules but also the intertwining tax treaty network for each and every country in the world. Given the “Prisoner’s Dilemma”, it is HIGHLY unlikely that we will ever see a global “tax level playing field”. Each country will continually claim special circumstances or financial emergencies as to why they are not immediately changing current policies. Finally, as explained above taxing regimes do not have the same “leverage” over all corporations or individuals. With “global citizens” (i.e. Golden Geese who do not need to be in the country of their birth to make and maintain their wealth/income), cloud computing, and the pending revolution in 3D printers (which will turn more current tangible goods into intangible services/programs delivered on-line direct to the consumer), you will see more and more taxpayers who are more like Google than Starbucks.
David Lesperance @ 16/8/2013 - 18:34

Apple derives gross revenues from various products (hardware and software) which has competitors. Some of the sales of their products and services derive from physical retail outlets and some does not. The big question is whether Apple products (with their hardware and software integrated) is unique enough to avoid a drop in revenues; In summary, Starbucks sells a standard physical commodity which is readily available from other competitors and is clearly subject to pressure. “Search” and “Tweeting” are not a standard physical commodities today and whether through perception or reality, both are far and away market leaders. As a result, neither Twitter or Google are motivated by self interest to pay more tax to maintain gross revenues. Where Apple considers itself (closer to a standard replaceable commodity or a unique product) will determine where they will respond and volunteer to pay more tax anywhere than they are legally obligated. It is also worth understanding that revising the current international legal tax planning regime for individuals and corporations is not simple. First it requires that each country think about all of the possible/ probable reactions of corporations and individuals to any changes that come into being. Increasing a tax rate or taxable amount could result in the individual or corporation moving all or part of its operations/holdings outside of that jurisdiction. This means that not only is the anticipated additional tax revenue never materializing but jobs, VAT, and other economic activity associated with that taxpayer also disappear;
David Lesperance @ 16/8/2013 - 18:33

Many US politicians and citizens want these companies to pay US tax on its WORLDWIDE income, including income earned from foreign customers. They argue that while this may not be legally correct, it is MORALLY correct because all three companies were a) Founded, IPOed (or will in the case of Twitter) and has their headquarters in the US; AND b) The citizens of the US are suffering in a financial downturn and “deserve” this money; -Many foreign politicians and citizens (like the Italians) want these companies to pay more tax on the revenue generated from customers in their country. They argue that while this may not be legally correct, it is MORALLY correct because a) The company is deriving income from tax resident individuals and corporations; AND b) The citizens of these countries are suffering in a financial downturn and “deserve” this money; All four companies want to maximize their net revenues (“gross revenues” minus “expenses including tax” equals “net revenue”). Each company used the tax treaty network and international structuring regime to minimize their global tax burden. As part of this structure they may have to set up operations in places like Ireland; or assigned intellectual property rights to places like the Netherlands. However there are important differences between these companies; Starbucks needs to respond to this “Moral but not legal” obligation demand because a) It has physical facilities in the foreign country which could be picketed or damaged reducing sales; and b) There are many competitors in these countries who could easily service customer needs and decrease gross revenues. As a result, it was logical that Starbucks decided to may pay more tax in the UK than legally obligated in order to maintain gross revenues and thereby maximize net revenue (http://www.ft.com/intl/cms/s/0/73fae3b4-f56f-11e2-94e9-00144feabdc0.html#axzz2bs7OeIND); Twitter and Google are different in that a) They do not have or need physical facilities in a given country to deliver its service; b) You can’t picket everyone’s smartphone, tablet and computer to ensure that everyone is boycotting their services; and c) With all due respect to other search engines, Google is not really realistically worried today about losing customers to its competitors. Same thing with Twitter’s lock on “tweets”. Therefore, the current controversy is unlikely to significantly reduce people from using their products and services. As a result, it is logical that they will not
David Lesperance @ 16/8/2013 - 18:04

There are some basic mistakes that you make in your calculations criticizing Apple's payment of corporate tax in Italy. First tax is paid on “net profits”, not on “gross revenues”. IOW, You don’t pay tax on the amount you sell the iPhone or iCloud service for. You have to pay all the costs in order to present that item or service to the customer. Apple also does not pay Italian corporate tax on net profits it makes outside of Italy. You pay Italian corporate tax on the ITALIAN PROFIT after expenses. Apple did just this and paid every euro of Italian corporate tax that they owed. One point that you do not really make well is the questioning of some of those “expenses”, in its Italian tax return, such as the use of intellectual property rights. This is the “transfer pricing issue”, that is occasionally brought up but rarely understood. This is part of the international corporate tax planning that is again criticized without understanding. When looking at this whole issue, its worth understanding some history and background. The current system of tax treaties and international structuring arose from a desire by many national governments to try and maximize the tax revenue they collect. They did this by recognizing that there are constantly situations where an international corporation may be obligated to pay tax to several jurisdictions on the same revenue (aka double taxation). Of course, this would result in no net revenue and the corporation going bankrupt. Therefore in order to attract the good or service to their jurisdiction; try to get as much tax revenue as possible; and try to encourage the corporation to set up some of its physical structure and work force in their jurisdictions, countries like the Italy, US, UK and Ireland set up tax treaties between themselves and other countries. It is key to understanding this underlying motivation for the current system. This system arose not out of some noble desire to relieve taxpayers of the “unfairness” of double taxation or even at the bequest of the lobbyists of those taxpayers. It came out of a logical self-interest of various governments. With this background in mind, let’s look at Twitter, Apple, Google and Starbucks (which are all under fire in the international media for their tax planning). Many US politicians and citizens want these companies to pay US tax on its WORLDWIDE income, including income earned from foreign customers. They argue that while this may not be legally correct, it is
David Lesperance @ 16/8/2013 - 18:03


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